I have the same problem. But only on one of my servers. The only difference I can find is that it is running PHP in safemode. Check with phpinfo(); to see if your site is also on the same setup (safemode on). I'm not sure if this is the reason.
Just tried RC3 as well with a server running PHP not in safemode, and upload doesn't work. It's even windows so no actual filerestrictions there. I'll hold on to RC2 for the time... too bad, the full page edit mode seems very nice.
RE: RC3 problem upload picture
RE: RC3 problem upload picture
RE: RC3 problem upload picture